Bank helped Rothstein in fraud scheme, lawsuit alleges

Sally Kestin, Paula McMahon and Brittany Wallman, Sun Sentinel

A Fort Lauderdale family who invested more than $100 million in attorney Scott Rothstein's alleged Ponzi scheme filed a lawsuit Friday against him, TD Bank and three of its executives, and four people inside Rothstein's law firm.

Rothstein, meanwhile, asked to be kept from ever practicing law again, admitting in court documents filed Friday that there is evidence he misappropriated funds from trust accounts at his now-crumbling law firm on Las Olas Boulevard, Rothstein Rosenfeldt Adler.

He is accused of running a $1 billion Ponzi scheme and lying to clients but hasn't yet been criminally charged.

The investors' lawsuit says that Linda and Doug Von Allmen and his stepson, Dean Kretschmar, bought into the scheme with assurances from TD Bank, whose executives duped them and helped Rothstein manipulate bank statements.

The RRA law firm was "the front to this elaborate Ponzi scheme,'' and TD Bank, "the financial epicenter,'' the suit filed by attorney Bill Scherer says.

"The claims are solely allegations and not evidence of any wrongdoing on the part of TD Bank,'' she said. "Through the legal process, the facts will prove that the Bank did not conspire with Mr. Rothstein and/or his firm. TD Bank will defend against all such unfounded claims. The Bank has and will continue to cooperate in an open and transparent manner, consistent with the law, with all governmental authorities and court orders.''

Scherer's suit says the alleged scheme could not have occurred without "insider help'' and names three of Rothstein's co-workers at RRA: David Boden, general counsel and "Rothstein's right-hand man,'' who recruited investors and drafted documents; Debra Villegas, chief operating officer and "Rothstein's Number 2,'' who supplied false bank account statements and wire transfers; and Andrew Barnett, director of corporate development, who solicited investors. Barnett's mother is an investor who says she lost $500,000.

Also named: Frank Preve, an employee of Banyon Income Fund, who had an office at the firm. Banyon brought in Von Allmen and other investors.

Attorney David Vinikoor said his client, Boden,"had no actual or constructive knowledge of any Ponzi scheme. He never solicited anyone to invest in any structured settlements. He was deceived just like many others.''

The scheme hinged on legal settlements Rothstein said his firm had reached, primarily in labor and whistle-blower cases.

Rothstein boasted of in-house private investigators, including ex- FBI and CIA agents, who secured incriminating evidence against high-profile people accused of sexual harassment or corporate wrongdoing. To avoid the negative publicity of a lawsuit, they would agree to a confidential settlement paid out over time.

The accusers wanted their money up front and agreed to a lesser amount. The investors funded those payments and then collected the full settlement amount from Rothstein.

While many of the settlements never existed, some were based on actual cases handled by Rothstein's firm, including one against Palm Beach County billionaire financier Jeffrey Epstein, a convicted sex offender accused of luring teenage girls to his mansion for erotic massages and sex acts.

The firm did represent one of Epstein's victims, but Rothstein is accused of creating a fictional victim.

The lawsuit includes an Oct. 6 e-mail from Rothstein to a hedge fund operator, pitching an investment on the case.

"It involved a horrific sexual assault against a girl that just turned 18. She was a minor when the attack occurred,'' Rothstein wrote. "She is giving up huge money as she wants the attacker out of her life. She and her mom are moving the minute she gets her money.''

He described the investment in abbreviations that appear to mean that for $18 million, the investor would earn $12 million in six months.

The lawsuit alleges that TD Bank either participated in the scheme or is guilty of negligence for the "red flags'' Rothstein's activities should have raised.

In October alone, more than $230 million moved through the law firm's trust accounts, "more money than most banks branches would likely see in a decade,'' the suit says.

Bank executives helped Rothstein defraud investors by providing statements showing account balances that did not exist and "lock letters'' confirming that money could only be paid out to the investor's account, the suit alleges.

Spinosa, Kerstetter and Caretsky "physically handed the trust account statement to Rothstein'' in front of investors on "numerous occasions,'' the suit says.

Spinosa was seen lunching with Rothstein at his Bova restaurant on Oct. 26, the day before he fled to Morocco. At the lunch, investor Richard Pearson confronted Rothstein about why he had not received two payments scheduled to be made the previous week, Scherer said.

Rothstein then drained the TD Bank accounts and wired $16 million to a Moroccan bank, the lawsuit alleges.

Spinosa's lawyer, Sam Rabin of Miami, was not immediately available to comment. Spinosa has been on leave from the bank, pending an internal investigation.

The now-disgraced Rothstein asked to be permanently disbarred in documents filed Friday with the Florida Supreme Court.

Among the possible Florida Bar rules he admits that he may have violated: committing a criminal act that reflects badly on his honesty, trustworthiness or fitness as a lawyer; failing to comply with trust accounting requirements; and failing to hold clients' funds or properties separate from his own funds.

Richard B. Marx, a Miami attorney who specializes in Florida Bar disciplinary cases, said Rothstein's decision to give up his law license is a pretty typical response from an attorney facing such serious criminal allegations.

"He's got enough to worry about without fighting the Florida Bar, and he might be best concentrating his efforts on fighting the criminal charges."

Rothstein's law firm continues its downward trajectory.

Herbert Stettin, the former Miami-Dade judge who was already serving as receiver for the firm, was formally appointed the Chapter 11 bankruptcy trustee on Friday. He will oversee the liquidation of RRA.